Note 6 - Capital Standards

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

6. Capital Standards

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional, discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Basel III Capital Rules became effective for the Bank on

January 

1,

2015

(subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier

1

capital, Tier

1

capital, and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier

1

capital to adjusted quarterly average assets (as defined).

In connection with the adoption of the Basel III Capital Rules, the Bank elected to opt-out of the requirement to include accumulated other comprehensive income in Common Equity Tier

1

capital. Common Equity Tier

1

capital for the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

Under the revised prompt corrective action requirements, as of

January 

1,

2015,

insured depository institutions are required to meet the following in order to qualify as “well capitalized”: (i) a common equity Tier

1

risk-based capital ratio of

6.5%;

(ii) a Tier

1

risk-based capital ratio of

8%;

(iii) a total risk-based capital ratio of

10%;

and (iv) a Tier

1

leverage ratio of

5%.

As of

March 31, 2019,

the Bank met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

The implementation of the capital conservation buffer began on

January 

1,

2016,

at the

0.625%

level and was phased in over a

four

-year period (increasing by that amount on each subsequent

January 

1,

until it reached

2.5%

on

January 

1,

2019

). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does

not

have current applicability to the Bank. As of

March 31, 2019,

the Bank met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier

1

capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The table below presents actual and required capital ratios as of

March 31, 2019

and

December 

31,

2018,

for the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of

March 31, 2019

and

December 

31,

2018

based on the phase-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

Capital ratios of the Company are substantially the same as the Bank’s.

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
March 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	48,615		13.79	%	$	37,022		10.50	%	$	35,259		10.00	%
Tier 1 capital (to risk-weighted assets)		46,086		13.07	%		29,970		8.50	%		28,207		8.00	%
Common equity tier 1 (to risk- weighted assets)		46,086		13.07	%		24,681		7.00	%		22,918		6.50	%
Tier 1 leverage (to average assets)		46,086		10.97	%		16,812		4.00	%		21,015		5.00	%

						Minimum
						Capital Adequacy					To Be Well
(Dollars in thousands)	Actual					Phase-In Schedule					Capitalized
December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	47,857		13.50	%	$	34,996		9.88	%	$	35,439		10.00	%
Tier 1 capital (to risk-weighted assets)		45,348		12.80	%		27,908		7.88	%		28,351		8.00	%
Common equity tier 1 (to risk- weighted assets)		45,348		12.80	%		22,593		6.38	%		23,036		6.50	%
Tier 1 leverage (to average assets)		45,348		10.86	%		16,698		4.00	%		20,872		5.00	%

As of

March 

31,

2019,

the most recent notification from the Federal Deposit Insurance Corporation (the “FDIC”), the Bank’s primary federal regulator, has categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain ratios as set forth in the table. There have been

no

conditions or events since that notification that management believes have changed the Bank’s category.

The FDIC, through formal or informal agreement, has the authority to require an institution to maintain higher capital ratios than those provided by statute, to be categorized as well capitalized under the regulatory framework for prompt corrective action.